Archer Aviation (ACHR): Evaluating Valuation Following Major Defense and Saudi Partnership Announcements

Archer Aviation (NYSE:ACHR) has recently made headlines with two major announcements. The company is set to supply its electric powertrain technology for use in Anduril Industries' Omen Autonomous Air Vehicle. It is also partnering with Saudi firms to bring its eVTOL aircraft to the Kingdom.

See our latest analysis for Archer Aviation.

Archer Aviation’s string of strategic deals and technology milestones has kept investors on their toes, but the market’s reaction has been mixed. Despite recent momentum, including deals in Saudi Arabia and a leap into defense tech, the company’s 1-year total shareholder return has declined 18.6%. Still, the long-term story appears brighter, with a three-year total return of over 200% suggesting that optimism around urban air mobility may be building again despite short-term volatility and headline risks such as ongoing legal disputes.

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With Archer shares trading at a steep discount to analyst targets and recent deals opening up new revenue streams, investors may be considering whether this is an opportunity to get in early or if the market has already priced in future growth.

Price-to-Book of 3.4x: Is it justified?

Archer Aviation's shares currently trade at a price-to-book ratio of 3.4x, putting the company in line with the broader US Aerospace & Defense industry. Despite this, investors are weighing whether the current valuation fairly reflects growth prospects and ongoing losses.

The price-to-book ratio compares a company's market price to its net asset value, offering a snapshot of how much investors are willing to pay for every dollar of company equity. For Archer, its 3.4x multiple means the market values the company’s assets at more than three times their book value. This can suggest high growth expectations, or in some cases, speculative optimism for a company still in its early stages and far from profitable operations.

When set beside the US Aerospace & Defense industry average of 3.4x, Archer's multiple appears neither cheap nor expensive based on the sector standard. However, compared to the peer average of 4.3x, Archer seems more reasonably valued, indicating investors might already be factoring in its unprofitable status and heightened risks.

See what the numbers say about this price — find out in our valuation breakdown.

Result: Price-to-Book of 3.4x (ABOUT RIGHT)

However, Archer’s ongoing losses and lack of current revenue remain key risks. These factors could challenge the upbeat expectations surrounding its future growth trajectory.

Find out about the key risks to this Archer Aviation narrative.

Another View: DCF Signals Deep Discount

Taking a different approach, our DCF model suggests Archer Aviation may actually be trading at a steep discount to its intrinsic value. With shares currently priced at $7.79, the SWS DCF model estimates fair value at $22.40. This points to the possibility of significant upside if growth plays out as expected. Does this longer-term outlook change the short-term picture?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Archer Aviation for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 913 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Archer Aviation Narrative

If you have a different perspective or want to dig into the numbers on your own terms, you can craft your own Archer Aviation outlook quickly and easily. Do it your way

A great starting point for your Archer Aviation research is our analysis highlighting 2 key rewards and 4 important warning signs that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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